Salary Breakdown Confusion: Is It Normal for Special Allowance to Exceed Basic Pay?

Basic: Rs. 5000/-
HRA: Rs. 3500/-
PF: Rs. 780/-
Convey: Rs. 800/-
Medical: Rs. 1400/-
Ch. Edu: Rs. 800/-
Special Allowance: Rs. 30000/-

Is the special allowance much greater than the Basic?

Dear,

It does not seem to be okay. The problem lies with the special allowance; it should be reasonable, but here, it does not appear to be reasonable. One more thing - what is a special allowance? This is a term we are creating ourselves. Why can it not be specific, like medical allowance, education allowance, tiffin allowance, conveyance, etc.? This salary breakup will also fix individuals under income tax.

J. S. Malik

This is not wrong in toto. Only a couple of adjustments are needed.

1. Basic has to be on or above the PF slab - currently at 6500 (if this raises, so should your basic). You must have a ceiling for PF contribution established for all employees.

2. Special Allowance is subjected to Income Tax always - no exemption at any cost.

3. You should not pay any additional incentives apart from Special allowances - all incentives should be bundled with special allowances. Any monthly incentive apart from this will defeat this idea.

With all this and careful planning, you can establish that this special allowance is a bundle of regular attendance, good performance, goodwill, and retention attempt.

By and large, Malikji's comment is worthwhile. Any CA who sees these pay parameters will immediately charge you FBT on this special allowance.

In my opinion, basic wages should be as per the minimum wages act fixed for the state, not necessarily above Rs. 6500. Special allowance break up is needed. FBT is not payable on any salary component, whether it is a special allowance or not.

Hi Srini,

The salary components should be decided as follows:
- Basic: 60% of CTC
- HRA: 50% of Basic
- Conveyance Allowance: $800 per month

The remaining amount can be allocated to other allowances such as Medical, Child Education, Entertainment, etc.

I kindly request all seniors to correct me if I am wrong.

Shikha

Certainly! Here is the revised text with corrected spelling, grammar, and proper paragraph formatting:

---

Can you please let me know what are the possible breakup heads under Special Allowance? Net salary 78000 is the maximum pay in our company. We are going to set 10% of net salary as the basic pay. Is it valid? Because already we set Rs. 780 for PF. For all employees, we showed Rs 6500 as Basic in the PF office. How do we break the remaining amount?

Regards,
Srini

---

I hope this helps! Let me know if you need further assistance.

Sir,

Can you please help me out to get the right salary break-up in percentage (%) format, which can also be helpful to save income tax for the employees of our organization?

Thanks & Regards,
Keyur

Hi Keyur,

What are your employees' minimum and maximum salaries? Based on that, you have to set the salary break-up so that all of them can receive benefits.

Regards,
Srini